SPX

The Reverse Option Pit Cross

Submitted by atg on Tue, 07/17/2012 - 5:00pm

Charts by Livevol (r) www.livevolpro.com

Part of the fun of being in this business is getting to name things. The nice thing about option trends or patterns is there is always a new one. Like the weather in Chicago (except for now), if you want it to change, just wait a couple of minutes. Volatility conditions change all of the time, and now is a time for another one.

VIX About to Dive?

Submitted by msebastian on Mon, 07/16/2012 - 5:11pm

One of the things my options mentoring students often fail to grasp is that volatility is all relative. While it is true that the VIX is below its long term mean of around 20%, that does not mean that the VIX is low. If the market begins to settle into a low volatility period (as I think it could be), the VIX at 17 could be sky high. Just ask a trader 6 in the past whether the VIX of 17 is high or not, his answer would be sky high.

Livevol (r) www.livevolpro.com

JCP juice at a discount?

Submitted by atg on Tue, 07/10/2012 - 5:16pm

It did not take much for the market to sell off today. Between the CMI reduced guidance and the account seizures at PFG Best, the whole market got shaken pretty good. The first half of the year with the Europeans dithering around has got some companies spooked, and it might start to show a little. The VIX futures rallied a little (up less 5% on a .8% move in the SPX), but no real fear crept back into the market. A news-driven, illiquid market (that is what we have) does push the volatility around in select name,s as it did with JCP today.

When VVIX gets near 80, it's a buy, so is VIX

Submitted by msebastian on Fri, 07/06/2012 - 1:46pm

One of the things this blog tries to do is to teach option traders why one cannot blindly sell premium (or buy for that matter). We try to teach option traders that one has to have some sort of idea on WHY they are entering a trade. Here is a great example of something we have noticed at Option Pit:

While VVIX, the VIX of VIX, is relatively new as a listed index, there have been other similar measurements out for some time on the vol of VIX. If we have learned one thing, its this: while realized vol measure on VIX might be tough, since the histroy of active VIX options trading in 2006, when the IV of the options begins to approach 80%, it is time to buy VIX options, because the price of the options is going higher.

Clear Example of Oversold an VIX

Submitted by msebastian on Tue, 07/03/2012 - 4:25pm

One of the problems my option mentoring students have understanding is the concept of relative premium price and 'cheap' options. But, if one wants to get a good options education, it is really key to understand the concept. To help you option traders, over the last few days, we have discussed how relative to risk, premium can become oversold. This happens when premium sellers go overboard risk assets get 'cheap' in the near term. I also stated that, around 11:00 or so EST, I thought we might see a bottom in premium selling. Well I was off by about 15 minutes as one can clearly see the point where premium got oversold:

La Zona Impacta

Submitted by atg on Mon, 07/02/2012 - 8:06pm

My Spanish is not very good, but I think my made up phrase is a good way to describe what has happened to the volatility in the indexes this week. Loosely translated, “La Zona Impacta” means The Impact Zone. That is the only way to describe the breath taking fall in IV over the last 3 trading days. A rock falling through a wet napkin would be another way to describe it, as the VIX fell from 21.5 to below 17.

A couple things on this fall to take into account:

The IV looks a little cheap, because we lose a day due to the 4^th of July holiday, so the market makers are taking out the theta leaving the IV buried.

How VIX Can Stay Flat on a Rally

Submitted by msebastian on Wed, 06/27/2012 - 4:41pm

We have dedicated several blogs to educating our option traders on how the VIX tricks the trader. We saw this again today. While the VIX ended up slightly down on the day, by no means was volatility down. Again, getting more granular and looking at strike prices, we can see that IV was infact up.

Here are the 1320 and 1335 strike prices, yesterday's and today's ATM contracts.

1320

1335

livevol (r) www.livevol.com

Sometimes the VXX feels like a mouse on a wheel

Submitted by atg on Mon, 06/25/2012 - 5:39pm

My kids just got some mice for pets. This is the entry level for us in pet world. Take care of the mice and you might get a dog. The problem with the mice is they run on this little wheel for what seems like 20 hours a day. Squeak, Squeak goes the wheel morning, noon and night. It must be the penance for me doing the Option Insider Radio when Longo tells me to de-squeak my chair since it ruins the mellifluous sounds of this voice. I digress here, but things lately are on some kind of daisy wheel with no real breakout one way or the other. Let’s see how the market prices that.

Understanding the VIX in Relation to SPX

Submitted by msebastian on Fri, 06/22/2012 - 4:06pm

One of the first things I teach my options mentoring students, on their way toward a great options education, is to understand how to understand the relative value of VIX. VIX is not a standalone product; it is a derivative of SPX. Thus, if one wants to properly read VIX, one must take it in relation to how the SPX is moving.

For instance, yesterday, I tweeted that based on the lack of movement in the VIX, I think the SPX is primed for a bounce today. To which I got many a flabbergasted responses saying "16%" isn’t big? The answer was no, 16% was not big, not in relation to a 30 point drop in the SPX. Let’s examine why.

A nice selloff on the way to the rally….

Submitted by atg on Thu, 06/21/2012 - 5:12pm

It must be nice to be Goldman. Look for a 5% decline and get half of it in one day. There is a reason why they are good. No doubt the lack of market liquidity had something to do with it. Also, the big banks are about to get downgraded by Moody’s. It does defy my imagination that the ratings agencies were nowhere in 2007 and are now popping up everywhere in 2012, when the banks have cash they cannot lend and balance sheets marked at the bottom of the housing cycle. And they get payed for that. Too funny. Let’s look at how the market rated the selloff today.

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